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Selling an SBA 8(A) Government Contractor

By:  Brian MacMilllan | Managing Director Mergers & Aquisitions

While the Small Business Administration 8(a) Program can provide business owners with numerous benefits, selling an 8(a) contractor can be difficult. However, the notion that an 8(a) contractor cannot be sold is false. Working with advisors with experience selling 8(a) contractors can allow owners of 8(a) contractors to successfully sell their business.

“An 8(a) contractor is a business that has been certified to do business with the government or other government contractors under the US. Small Business Administration 8(a) Business Development Program.
To learn more about how companies qualify for certification under the SBA 8(a) Business Development Program, please visit www.sba.gov/ content/about-8a-business- development-program”

SOLVING THE CHALLENGES FACED WHEN SELLING AN 8(A) CONTRACTOR:

Limited Number of Buyers: The main reason 8(a) contractors are not sold as frequently or for as much money as their private sector counterparts is the limited pool of buyers that can purchase an 8(a) contractor. It is important to keep in mind that the limited pool of buyers only applies if an 8(a) contractor receives a significant portion of its revenue from 8(a) set-aside contracts rather than “free and open” contracts. The buying pool for 8(a) contractors working on multiple 8(a) set-aside contracts is smaller because 8(a) set-aside contracts can only be transferred to other 8(a) contractors, making other 8(a) contractors the only willing and able buyers. Given the nature of the 8(a) Program, most 8(a) contractors are small and less likely to be in a buying mode, which limits the buying pool even further. Due to the limited buying pool, valuing an 8(a) contractor can be tricky, so it is important to speak with a certified valuation analyst with experience valuing 8(a) contractors. Finding potential buyers can be difficult, but there are buyers out there. Working with advisors who know how to find and attract potential buyers is crucial.

The Waiver Process:

Another key complication in the sale of 8(a) contractors working mostly on 8(a) set-aside contracts is the actual process of transferring the 8(a) contracts. When any contractor dealing with SBA-designated contracts is being sold, the SBA contracts have to be novated to the new business through the government entity that awarded the contract. This can be a complicated process itself, but the novation is fairly straight- forward and is typically done shortly after the closing of the sale of the business. However, 8(a) contracts are automatically terminated upon the transfer of ownership of a contractor unless a “waiver” of the automatic termination is obtained prior to the closing of the sale of the contractor.

This SBA waiver process adds complexity and time to the transaction which needs to be anticipated by both the buyer and the seller. In order to make the SBA waiver process as smooth as possible, advisors should have a solid understanding of what the process entails.

The rules and regulations related to the SBA waiver can be found in Section 13CFR124.515 in the Code of Federal
Regulations. This Section states that the SBA Administrator may waive the auto- matic termination if requested to do so by the 8(a) contractor when ownership and control of the concern that is performing the 8(a) contract will pass to another 8(a) participant, but only if the acquiring firm would otherwise be eligible to receive the award directly as an 8(a) contractor.

It is the selling entity’s responsibility to submit the waiver request to their SBA Administrator (Contracting Officer) and to manage all communication with the government regarding the waiver. However, the selling entity must include in the waiver request, among other items, evidence that the buyer’s 8(a) status is in good standing and that the buyer has the capability to assume and perform all requirements of the 8(a) contracts whose termination is being waived.

The specific government entity (DoD, DoL, DoT, NASA, etc.) that initially awarded the 8(a) contract will have to sign off on the waiver as well. As such, it is important to make sure the specific government entity is aware that the seller is submitting the waiver and, if possible, can provide the seller with a verbal understanding that they will approve the waiver.

The amount of time the waiver process takes can vary dramatically from a few weeks to a few months and can heavily depend on the selling entity’s relation- ship with their Contracting Officer and the experience of said Contracting Officer with the waiver process.

Choosing Experienced Advisors:

Complex rules regarding the sale of 8(a) contractors and, more specifically, the transfer of 8(a) contracts means that there are fewer advisors familiar with the sale of 8(a) contractors. The lack of advisors (merger and acquisition advisors, certified valuation analysts, CPAs, attorneys) with knowledge of the subject and experience working with 8(a) contractors creates a void of information for owners of 8(a) contractors; they frequently do not know with whom to speak regarding the sale of their 8(a) contractor.

Selling any business can be a daunting task and is one of the most important decisions in the life of a business owner. Understanding the added complexities of selling an 8(a) contractor can mean the difference between a successful sale and an unsuccessful one. In order to successfully sell an 8(a) contractor, it is important that the owner of an 8(a) contractor with 8(a) set-aside contracts consults with experienced advisors, such as the Mergers & Acquisitions team at BWFA, who have dealt with the challenges outlined above.